How to Calculate Rate of Depreciation Formula

Depreciation Rate Calculator

Straight Line Method Double Declining Balance

function calculateDepreciation() { var cost = parseFloat(document.getElementById('assetCost').value); var salvage = parseFloat(document.getElementById('salvageValue').value); var life = parseFloat(document.getElementById('usefulLife').value); var method = document.getElementById('depMethod').value; if (isNaN(cost) || isNaN(salvage) || isNaN(life)) { alert("Please enter valid numbers for Cost, Salvage Value, and Useful Life."); return; } if (life <= 0) { alert("Useful Life must be greater than 0."); return; } var depreciableAmount = cost – salvage; var straightLineRate = (1 / life) * 100; var doubleDecliningRate = (2 / life) * 100; var resultDiv = document.getElementById('depreciationResult'); var resRate = document.getElementById('resRate'); var resTotalDep = document.getElementById('resTotalDep'); var resAnnualExp = document.getElementById('resAnnualExp'); var yr1Row = document.getElementById('yr1Row'); var resYr1 = document.getElementById('resYr1'); // Format Currency var formatter = new Intl.NumberFormat('en-US', { style: 'currency', currency: 'USD', }); resTotalDep.innerHTML = formatter.format(depreciableAmount); if (method === 'sl') { // Straight Line Logic var annualExpense = depreciableAmount / life; resRate.innerHTML = straightLineRate.toFixed(2) + "% per year"; resAnnualExp.innerHTML = formatter.format(annualExpense); yr1Row.style.display = 'none'; } else { // Double Declining Logic // Note: DDB applies rate to Book Value (Cost), ignoring salvage initially, but cannot depreciate below salvage. // Year 1 Expense var ddbExpenseYear1 = cost * (doubleDecliningRate / 100); resRate.innerHTML = doubleDecliningRate.toFixed(2) + "% per year"; resAnnualExp.innerHTML = "Variable (Declining)"; yr1Row.style.display = 'flex'; resYr1.innerHTML = formatter.format(ddbExpenseYear1); } resultDiv.style.display = 'block'; }

How to Calculate Rate of Depreciation Formula

Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. Understanding how to calculate the rate of depreciation allows businesses to accurately report financial health and manage tax liabilities. The rate at which an asset loses value depends heavily on the method chosen: Straight-Line or Accelerated (like Double Declining Balance).

1. Straight-Line Depreciation Formula

The Straight-Line method is the simplest and most commonly used. It assumes the asset loses value steadily over time. The "rate" in this context is simply the percentage of the asset's cost that is expensed each year.

Depreciation Rate (%) = (1 / Useful Life) × 100
Annual Expense ($) = (Cost – Salvage Value) × Depreciation Rate

For example, if a machine has a useful life of 10 years, the depreciation rate is (1 / 10) × 100 = 10%. This means 10% of the depreciable base is expensed annually.

2. Double Declining Balance Formula

This is an accelerated depreciation method. It expenses more value in the early years of the asset's life. The rate is typically double the straight-line rate.

Double Declining Rate (%) = (2 / Useful Life) × 100
Year 1 Expense ($) = Book Value at Beginning of Year × Depreciation Rate

Using the same 10-year example: The Straight-Line rate is 10%, so the Double Declining rate is 20%. However, this rate is applied to the full book value (Cost) at the start, not just the depreciable amount (Cost minus Salvage).

Key Variables Defined

• Asset Cost: The total purchase price of the asset, including installation, shipping, and taxes.
• Salvage Value (Residual Value): The estimated worth of the asset at the end of its useful life. It is the amount you expect to sell it for as scrap or used equipment.
• Useful Life: The estimated duration (usually in years) that the asset will be productive for the business.
• Depreciable Base: Calculated as Asset Cost minus Salvage Value. This is the total amount that can be written off over time.

Why Calculation Matters

Calculating the correct depreciation rate is vital for:

• Tax Deductions: Higher depreciation rates in early years (via methods like DDB or MACRS) can reduce taxable income sooner.
• Asset Valuation: Maintaining an accurate Balance Sheet requires knowing the current book value of assets.
• Capital Budgeting: Understanding how fast equipment value declines helps in planning for replacements.